Largest U.S. Grid Operator Accelerates Timeline For Powering New Data Centers
The skies are beginning to clear for data center developers seeking new electricity on the 13-state power grid operated by PJM Interconnection.
Following months of growing concerns that PJM's power transmission system couldn't handle the unprecedented demand from artificial intelligence data centers, the operator this week released new plans that appear to have calmed the market.
The grid operator said in a Tuesday letter that it would expedite plans to connect new data centers that would have needed to wait until next year. It now says it will hold a power procurement auction in September.
"Waiting until 2027 to execute the centralized procurement, considering the pace of demand from new large loads, presents a heightened reliability risk to PJM," says the letter, signed by PJM board Chair Paula Conboy.
The letter also outlines plans for consolidating two of PJM's power procurement processes into one, a move "intended to reduce procedural friction."
The announcement led to a surge in the stock prices of utility companies that source their power from PJM, Bloomberg first reported. Shares in Constellation Energy, Vistra Corp. and NRG Energy all jumped more than 4.5% Wednesday and were each up again Thursday morning.
A Wednesday analyst note on these companies from KeyBanc Capital Markets says the expedited timeline "represents a meaningful improvement in market volatility."
"By pulling forward procurement, PJM reduces the risk of prolonged uncertainty extending into 2027, which had been a key overhang on both investment decisions and commercial dealmaking," KeyBanc's analysts wrote. "This increased clarity, combined with forthcoming regulatory decisions, could help restart activity in data center-related power agreements that have been delayed since late last year."
PJM's grid spans 13 states in the mid-Atlantic and Midwest, including top data center clusters in Northern Virginia and the Chicago area. The skyrocketing power demand from data centers has put strain on the grid and led to rising concerns about PJM's transmission infrastructure and interconnection processes.
The governors of nine states wrote a letter to its board in July saying PJM "faces an unprecedented crisis of confidence from market participants, consumers and the states."
The concerns center around the risk of electricity blackouts and rising costs. Wholesale power prices on PJM's grid jumped 76% last quarter, Bloomberg reported.
In January, the Trump administration and governors of PJM states proposed an unprecedented emergency power auction, a plan that would require Big Tech companies to pay for their entire contracted power allotment over a 15-year term, regardless of whether they ultimately use the full amount.
In March, PJM also proposed changing its rules around behind-the-meter agreements that allow data center operators to build their own power generation on-site.
U.S. Energy Secretary Chris Wright, speaking last week at a Bisnow event, criticized PJM's management of its grid.
"PJM has been not good at having a permitting process and a structure that encourages investment," he said. "We came out with recommendations to PJM, we tried to push them, we’ve got bipartisan governors coming together to say we’ve got to change this. It’s frustrating. That’s not moving as fast as we’d like, but we will not stop pushing."
